Back when Jim Chalmers was negotiating with the Coalition to pass the government’s Reserve Bank of Australia reforms he offered a key concession.
Instead of proposing to abolish the power to overrule the RBA on the setting of interest rates, Labor was prepared instead to limit the power to “emergency circumstances and not just differences of opinion”.
“You know, every time that there’s an interest rate decision, for example, the Greens in their usual way will say that the parliament should override the decision,” he said on 23 August. “That’s a difference of opinion.”
The RBA meets again this week, with another decision on rates coming on Tuesday. Australia’s curious mix of moderating inflation, weak growth but strong employment means we should prepare for more differences of opinion.
Michele Bullock has said rate cuts are unlikely in the near term.
But how the RBA assesses Australia’s predicament could give clues about whether it will stick to its guns and wait until next year to begin cuts, or if there is something to economists’ and market expectations that a cut this year is becoming more likely.
The differences of opinion between the bank and the government are obvious from Chalmers’ observation about rates “smashing the economy” and his rejection of the RBA chief economist Sarah Hunter’s claim that the jobs market is “running too hot” and exacerbating inflation.
On Sunday Chalmers again said he doesn’t “think that the data supported the view that the economy was running too hot”.
The Treasury expects the monthly inflation figure, out on Wednesday, will show it has “come down quite substantially”, according to the treasurer, a shade over the target band of 2% to 3% – or even just within it.
Chalmers said both the RBA and government are “trying to get on top of inflation without ignoring the risks to growth in our economy” and “overall, we’re on the same page”.
So, the differences between the RBA and the government are slight. But between Labor and the Greens they are more stark.
Since Chalmers’ comments in August the Coalition has ruled itself out of supporting the RBA reforms, which would create a new board focused on setting interest rates, as distinct from its governance board.
To pass the bill Labor will need the Greens, who have demanded that the government retain powers to overrule the bank on the cash rate, and that the RBA continue to be able to direct banks where to lend when it engages in quantitative easing.
The Greens have no doubts about which way rates should be moving. On Monday the Greens Treasury spokesperson, Nick McKim, announced that the minor party would not help pass the bill until interest rates were cut.
Note: their precondition is not that Chalmers come in over the top and overrule the RBA. An interest rate cut by the RBA will meet the Greens’ condition. But this gives them possibly five months to highlight that they think mortgage-holders should get relief now.
“For weeks the treasurer has acknowledged the economy is being smashed, and that mortgage holders are being smashed by high interest rates – yet to date he’s done nothing about it despite having the power to reduce interest rates,” McKim said.
It’s exactly the dynamic Chalmers had hoped to avoid: of independent RBA decisions being debated not just by economists, or between the bank and the government, but in the political sphere.
He can thank the Coalition for once again driving Labor into a half-negotiation, half-cage fight on its left flank.
Labor plays the politics just as hard. This month Anthony Albanese was asked about inflammatory Greens rhetoric that Labor had handed the RBA “a box of matches and is now surprised it lit a fire on inflation”. He replied that the Greens are “irrelevant to serious economic policy debate in this country”.
On Thursday the prime minister said in the context of the housing impasse that the Coalition and Greens are both “blockers”.
“They don’t put forward practical plans,” he said. “In the Greens case, they put forward things which are uncosted and unachievable. Really just the vibes of policies rather than serious ones.”
Albanese also levelled the “uncosted” charge at the Coalition over its nuclear policy, which is fair enough. Peter Dutton will give a major speech on the issue on Monday, which we understand still won’t contain its expected cost.
That’s not the case for the Greens. When they have proposed a public property developer or raising billions from taxing excessive profits, their ideas were costed by the Parliamentary Budget Office.
Labor can disagree with proposals to reform capital gains tax and negative gearing, which Albanese suggested on Thursday may harm supply. It can disagree with whether interest rates should be a political football.
But by fighting to retain the power for the government to overrule the RBA, and in other areas of policy, the Greens will offer choice. Perhaps populist, perhaps not what Labor would call responsible. But not unserious.
Differences of opinion on monetary policy will remain in the democratic sphere, not a purely technocratic affair.
